Does the 8-week time limit for notification apply to all compensation events ("CE's")?
- Yes – 8 week applies to all CE's
- No – 8 week period is only a guide
- Doesn’t apply to PM Instructions
Notification of a compensation event
Compensation events are events which, if they occur, and do not arise from the Contractor's fault, entitle the Contractor to be compensated for any effect the event has on the Prices and the Completion Date or a Key Date. Events that are compensation events are set out in the NEC contract. There are 19 events listed in clause 60.1 of the core clauses with further events listed in the secondary options. The Employer also has the option to add further events in the Z clauses.
From a notification perspective, there are two categories of compensation event: those which arise from the Project Manager giving an instruction, issuing a certificate, changing an earlier decision, or correcting an assumption and then all the others. For those in the first category, the Project Manager notifies the Contractor of the compensation event (clause 61.1). For all others, the Contractor notifies the Project Manager of the compensation event, which notice must be issued within eight weeks of the Contractor becoming aware of the event (clause 61.3).
For compensation events that should be notified by the Project Manager, the 8-week time bar does not apply.
Consequences of Failure to Notify within 8 weeks
If the Contractor fails to notify a compensation event within the stipulated 8-week period then it will not be entitled to a change in Prices, Key Dates or Completion Date. A failure to give the requisite notice of a compensation event to the Project Manager can therefore have drastic consequences for the Contractor. The courts have been known to interpret provisions in other contracts akin to Clause 61.3 as conditions precedent and have been unforgiving to contractors who fail to give proper and timeous notice.
What constitutes notice?
Clause 13 of the NEC contract requires notifications to be communicated in a form that can be "read, copied and recorded" and issued separately from other communications to the address notified by the recipient, failing which the address stated in the Contract Data.
It is not difficult to envisage a situation where, notwithstanding a failure by the Contractor to formally notify the Project Manager of a compensation event, the Project Manager is nonetheless aware of the event from discussions on site or at meetings. However, in terms of the notice provisions, references to a compensation event in meeting minutes or correspondence would not constitute proper notice of the event. To avoid any ambiguity a timeous, clear and unequivocal notice in writing should be issued in relation to each compensation event.
It is worth noting that clause 61.7 prevents all compensation events from being notified after the "defects date" which essentially acts as a long-stop date for notification of compensation events.
Please note that the provisions discussed in this blog apply to unamended NEC contracts. Parties should be aware of any amendments which could alter the requirements for notifying a compensation event.